His elevation to the Lords was greeted by sniggers. "I'm not sure ermine suits John Prescott," sniffed the Telegraph's chief leader writer. Posts after the article were beyond contemptuous. A naval man writes: "Prescott was a steward on passenger ships; we called them housemaids with testicles, and like many another flunky he likes to emulate those he cares to consider his betters." Another commenter says: "Lord Two-Jags has finally slashed the average IQ of the upper house to single digits." And another: "Someone has to serve the drinks between debates!"

Snobbery is as old as the hills, but this yahoo triumphalism of the rich shows how unassailable they seem to feel these days, with their children and grandchildren cemented into permanent privilege, regardless of merit or endeavour. No equerry thought to tell Princes William and Harry that holding a "chav" party might lack some of the noblesse oblige that Eton is supposed to instil.

Now the working classes are no longer feared as a political peril they no longer need respect, and the uppers can revel in their superiority as if this were the 18th century. Extraordinary that the Times should run an advice article this week about what the Notting Hill set are wearing – Lanvin and Louboutin – presuming readers will admire their betters even in austere times. The fashion for class "swap" reality TV continues unabated. The easy formula finds the most dysfunctional families to gawp at and moralise over, with no reminder that most who live below the poverty line are in work, and only poor because they don't earn enough to live on.

So who says class politics is dead? It bursts out everywhere, all the time. In the Labour leadership contest, five Oxbridge candidates, four of them former special advisers, anxiously trade class back-stories. The Milibands talk of being comprehensive-educated, sons of immigrants – north London intelligentsia, actually. Ed Balls, the only private school-educated one, talks of his grandfather's working-class origins. Diane Abbott has Jamaican roots. Andy Burnham claims he's the only one with working-class cred, but as a unique selling point it looks a bit desperate.

Plainly, old-fashioned class origin matters for electability, as it does in America, where Clinton and Obama's humble back stories were useful ballast to White House myth-makers. Cameron and his coterie would have done better if they had a Grantham grocer (Margaret Thatcher) background. Even the fig leaf of Eric Pickles isn't enough to cover the class embarrassment of 20 Etonians on the Tory benches. Gordon Brown droning on about his "ordinary middle-class" background became painful to hear, irrelevant to his own failings.

Odd how Harriet Harman gets knocked about the Tory press as a class traitor aristo because her mother's sister married Lord Longford, yet in his heyday Tony Benn – former Lord Stansgate, married to a millionairess – was not attacked on class grounds. True, this is sexism in part: nothing beats the right's loathing of posh women of the left. Rightwingers attacking champagne socialists assume selfish interest is a virtue, so any higher earner advocating higher tax is a hypocrite.

How perverse is it that the Commons in the 21st century has become less, not more, class representative. Only 7% of children attend private schools but nearly four out of 10 MPs are privately educated, up from 30% in 1997. That's inevitable with the Conservatives dominant, 54% of them from private schools, 40% of Lib Dem MPs and only 15% on Labour benches. Perhaps that does reflect Britain's growing inequality. Society is less mobile, with class at birth a more certain destiny than a generation ago. People cling to the belief that merit trumps class – but the Alan Sugars and Damon Buffinis are famous because their rags to riches tales are so exceptional.

Blair's New Labour sought to bury class politics. But over the years denying deep them-and-us class feeling may have alienated more voters than it won. Of nearly five million votes Labour lost since 1997, only one million went to the Conservatives. The warped voting system means elections turn on some 200,000 marginal middling swing voters, ignoring the votes uselessly piled up in safe seats. A proportional system matters because it makes every vote count equally, reviving the value of working-class voters who have felt neglected. But it's not just working-class votes. A misreading of class beguiled Labour into aiming too high up the class range. The idea that "aspiration" meant appealing to what was then the top tax bracket was absurd: only 12% earn over £40,000, taking them into 40% tax. The "squeezed middle" is large – median earners on £24,000, or with a family income of around £34,000.

When Blair and Brown boasted of growth in the boom years, they deceived these middle earners, whose incomes stayed pretty static. Instinctively they knew it. Now they will suffer losses of tax credits and services, fearing for their jobs, their children's college places, careers and any chance of a home. Meanwhile, boardroom pay and bankers' bonuses will seem more obscene when most people know some decent public servant who has been fired.

By next year it will not be "old Labour" to spell out whose side the party is on. Indeed, Labour's leadership candidates are breaking the class omerta. Sociologically, class is more confusing when nearly 70% own their own homes and a majority are in white-collar work – but Labour needs to reframe a sense of who, as well as what, it stands for. People feel pay has been unfairly shared, and not just during the recession. Since 1994, Labour's ban on discussing class has left a gaping hole in British politics, where people have a hazier idea of where they stand and what others earn. Since the decline of union power, ignorance about relative earnings has left inchoate class resentment bubbling beneath the surface but erupting erratically.

Why didn't personable David Cameron win a stonking victory against a Labour on its knees? Gut fear and class memory of what Conservatives do, that has been amply justified. Without top-hat silliness or personal spite, Labour has everything to gain in pointing out where the axe is falling, when the class in power distributes cuts so unjustly. (I have not lost a penny from this budget.)